Government will not save ‘zombie’ banks

Update:
October, 25/2016 - 10:23

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The Government will consider the possibility of letting poor performing commercial banks go bankrupt, instead of saving them as it did in the past. — Photo cafef.vn

HÀ NỘI – The Government will consider the possibility of letting poor performing commercial banks go bankrupt, instead of saving them as it did in the past, Deputy Prime Minister Vương Đình Huệ has said.

He affirmed last Saturday that the Government is determined to restructure the banking system with top priorities being protecting the interests of depositors and preventing the “domino” effect which happens when one bank stops operation.

In fact, there has been no precedent for such bank bankruptcy in Việt Nam due to the fears of systematic failure.

In 2015, the SBV acquired three banks, namely Việt Nam Construction Bank, Ocean Bank and GP Bank, at 0 đồng per share due to the banks’ ailing performance and failure to meet the required charter capital increase.

With this determination, it is unlikely that history will repeat itself as Huệ said “the Government would take tougher measures to deal with weak credit institutions”.

Minister of Finance Đinh Tiến Dũng, who is also a National Assembly deputy of the northern province of Ninh Bình, said that it is necessary to ensure the safety of the banking system but ensuring the interests of depositors is more important.

Before that, talking to the press on the sidelines of the National Assembly, Dũng also made the comment that a safety system is needed for the Government to ensure the interests of depositors, but the bank can not be forced to survive.

Nguyễn Việt Khoa, lecturer at the HCM City University of Economics’ Faculty of Economic Laws, said that the bankruptcy of a bank is normal.

Monetary policy aims to ensure the interests of hundreds of thousands of businesses, not the sake of a few dozen banks, he said.

Therefore, the State should save hundreds of thousands of businesses which are in difficulties, because when they are bankrupt, a lot of people will face unemployment and even more hardship, Khoa said.

Nguyễn Phước Thanh, Deputy Governor of the State Bank of Việt Nam said to avoid going bankrupt, commercial banks had to strengthen their financial capacity, especially those with a small scale, as well as improve their risk management capability to limit bad debts.

The most important thing is that banks must increase capital in a transparent and proper manner, otherwise it will struggle sooner or later, Thanh stressed.

In the immediate future, the SBV will let the market eliminate ailing credit funds, financial companies and small banks, so as to not cause shocks to people and minimize the impact on industry insiders.

Trương Văn Phước, deputy chairman of the National Financial Supervisory Commission (NFSC), said the process of restructuring credit institutions in recent years has achieved certain success, especially helping the system avoid falling apart.

However, shortcomings have not been completely addressed, especially weak and small-scale banks of which bad debts account for a large part of the whole system.

According to an NFSC report on the country’s economic situation in the first nine months of the years, bad debts of 19 credit institutions accounted for 55.1 per cent of total non-performing loans of the system. – VNS